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Lower borrowing rates and higher deposit yields. Credit union profits go back to members, who are shareholders. This enables credit unions to charge lower interest rates on loans, including mortgages, and pay products, such as share certificates (or CDs). Lower fees. Federal credit unions are exempt from federal taxes. As a result, they tend to charge lower fees, and have fewer of them, on checking accounts and other products. Variety of products. Large credit unions have product lineups that rival many banks, including checking accounts, savings accounts, money market deposit accounts, share certificates, mortgages, auto loans, student loans and credit cards. Insured deposits. If a credit union is a member of the National Credit Union Administration, members’ deposits are federally insured by the NCUA’s Share Insurance Fund for up to $250,000 per depositor. More personal service. Credit unions are usually local or regional, which means service may be more personal. Educational resources. Credit unions tend to stress financial literacy, so it’s common for them to offer seminars, articles, calculators and other tools to help their members sharpen their money skills. Cons of credit unions
Membership required. Credit unions require their customers to be members. Account holders must meet eligibility requirements to use the products and services. Membership requirements are often lenient, though, and joining may be as easy as depositing $5 into a savings account. Not the best rates. You can probably find a higher annual percentage yield (APY) on a share certificate or savings account or a lower rate on a loan at online-only banks, which do not have the expense of maintaining branches. Limited accessibility. Credit unions tend to have fewer branches than traditional banks. A credit union may not be close to where you live or work, which could be a problem unless your credit union is part of a shared branch network and/or a large ATM network like Allpoint or MoneyPass. May offer fewer products and services. Smaller credit unions may not offer as many loan and deposit products as big credit unions and banks. They also might not offer the latest technology, such as online banking, mobile banking and peer-to-peer payment platforms, such as Zelle. Credit unions vs banks How they differ
offer many of the same products and services, but there are some noteworthy differences between them. Banks are for-profit institutions that generally charge more fees and require higher minimum deposits and balances to open and maintain accounts. Banks pay taxes, whereas credit unions are not-for-profit institutions that don’t pay federal taxes. Banks are accountable to shareholders who want to maximize profits. Credit unions return all profits to their members by paying higher APYs on deposits and charging lower interest rates on loans. To do business with a credit union, you have to become a member, but banks are typically open to anyone. You can walk into any bank and apply for a loan or open an account without having to meet membership requirements. Online banks and traditional banks tend to have more digital tools to offer customers, such as mobile banking and online banking. Credit unions, especially smaller ones, may be less technologically advanced. Deciding between a credit union and a bank
Do you prefer mobile banking to branch banking? Is earning as much as you can on your savings a top priority? If you’re trying to decide whether to join a credit union or do business with a bank, consider what you need and want most from a financial institution. Once you’ve got a clear idea of what you’re looking for, Bankrate’s lists of and can help you zero in on the best options. Draft a short list of your favorites, then compare the products and features that matter to you most. Once you’ve made a choice, it’s time to open an account. Bottom line
A credit union may be a good option if you are looking for higher APYs, lower loan costs and a closer relationship with a financial institution. Consider the pros and cons of credit unions, do your homework and make the choice that’s best for you. SHARE: Libby Wells covers banking and deposit products. She has more than 30 years’ experience as a writer and editor for newspapers, magazines and online publications. Brian Beers is the managing editor for the Wealth team at Bankrate. He oversees editorial coverage of banking, investing, the economy and all things money. Robert R. Johnson, Ph.D., CFA, CAIA, is a professor of finance at Creighton University and chairman and CEO of Economic Index Associates, LLC. Related Articles